"The Wind and the Waves are Always on the side of the Ablest Navigators." – Edward Gibbon

What’s sparking electric-vehicle adoption in the truck industry?

Commercial fleets could go electric rapidly. Understanding total cost of ownership and focusing on specific cases is critical.

There’s nothing new about electric trucks; they have labored on the streets of major cities across the world since the first decades of the 20th century.

Fleet managers prized these trucks for their strong pulling power and greater reliability than vehicles powered by early, fitful internal combustion engines (ICEs). And now, in a high-tech second act, both incumbent and nontraditional makers of commercial vehicles across most weight categories and a variety of segments are launching new “eTrucks.” A century on, the question is, why now?

We believe the time for this technology is ripe and that three drivers will support the eTruck market through 2030.

First, based on total cost of ownership (TCO), these trucks could be on par with diesels and alternative powertrains in the relative near term.

At the same time, barriers to eTruck adoption exist: new vehicles must be proved to be reliable, consumers need to be educated, and employees, dealers, and customers will require training. Furthermore, there are challenges in managing the new supply chain and setting up the production of new vehicles.

Based on the analysis of many different scenarios—which are highly sensitive to a defined set of assumptions—our research shows that commercial-vehicle (CV) electrification will be driven at different rates across segments, depending on the specific characteristics of use cases.

Electrification is happening fast, and it’s happening now

McKinsey developed a granular assessment of battery-electric commercial vehicles (BECVs) for 27 CV segments across three different regions (China, Europe, and the United States), three weight classes, and three applications. The three weight classes are light-duty trucks (LDTs), medium-duty trucks (MDTs), and heavy-duty trucks (HDTs), while the three applications are urban, regional, and long-haul cycles. While our modeling also includes other alternative fuels and technologies such as mild hybrids, plug-in hybrids (PHEVs), natural gas, and fuel-cell electric CVs, this article focuses on full electrification.

Our model concentrates on two scenarios, “early adoption” and “late adoption,” to help place bookends for each weight class and geography (Exhibit 1). The two scenarios reflect different beliefs regarding core assumptions, such as the effectiveness of any regulatory push, the timing of infrastructure readiness, and the supply availability, which results in delay or advancement of uptake.

Exhibit 1

Our research reveals strong potential uptake of BECVs, especially in the light- and medium-duty segments. Unlike decision criteria to purchase passenger cars, CV purchasing decisions place greater emphasis on economic calculations and reflect a greater sensitivity to regulation. Light- and medium-duty BECV segment adoption will probably lag that of passenger-car EVs through 2025 due to a lack of eTruck model availability and fleets that are risk averse. However, our analysis indicates that in an “early adoption” scenario, BECV share in light and medium duty could surpass car EV sales mix in some markets by 2030 due to undeniable TCO advantages for BECVs over diesel trucks.

Comparing the weight classes, our scenarios suggest low uptake in the HDT segment mainly because of high battery costs, and, as such, later TCO parity. In the MDT and LDT segments, our “late adoption” scenario suggests that BECVs could reach 8 to 27 percent sales penetration by 2030, depending on region and application. In our “early-adoption” scenario, with more aggressive assumptions about the expansion of low-emission zones in major cities, BECVs could reach 15 to 34 percent sales penetration by 2030.

The inflection point appears to be shortly after 2025, when demand could be supported by a significant tailwind from the expected tightening of regulation (for example, free-emission zones), in combination with increasing customer confidence, established charging infrastructure, model availability, and improved economics for a variety of use cases and applications.

The importance of total cost of ownership

TCO plays a more important role in commercial-vehicle purchasing considerations and modeling TCO helps companies understand the timing of TCO parity across different powertrain types. We analyzed the sensitivity of TCO parity to see how much earlier a specific use case with a custom-made technology package tailored to a predefined driving and charging pattern can break even. The illustration of the “race of eTrucks” shows the interval of potential TCO breakeven points for various applications and weight classes (Exhibit 2). The light-colored shade behind each point indicates how early a specific use case can potentially break even.

Exhibit 2

Medium average daily distances show the earliest TCO breakeven point. Looking across weight classes, we can identify an optimal daily driving distance that establishes TCO parity for eTrucks and diesels. In the example shown, the earliest breakeven point occurs at a distance travelled of about 200 kilometers a day. This sweet spot of operation means the battery is large enough to enable efficient operation without too many recharges, while ensuring sufficient annual distance to benefit from the lower cost per kilometer. At the same time, the battery is still small enough to limit upfront capital expenditures. This effect is strongest where the difference between electricity and diesel prices is high, as in the European Union, where taxes on fuels are high, resulting in a high price differential with electricity prices. In the United States, prices for fuel and electricity are both lower, as is the absolute price differential.

Urban city buses will break even earliest in the heavy-duty segment. Electric city buses—an adaptation of a purpose-built HDT—could break even the earliest in the HDT segment, between 2023 and 2025 for the average application. In China in 2016, the share of new EV bus sales already exceeded 30 percent1due to regulatory considerations. By 2030, EV city buses could reach about 50 percent if municipalities enact conducive policies. City and urban bus segments are likely to experience some of the highest BECV penetration levels in Europe and the United States.

The breakeven point for light-duty urban applications is sensitive to minor changes in use case. While the average LDT-segment truck could break even in 2021, by slightly modifying the use-case characteristics (for example, using a smaller battery, recharging during operation, or assuming higher energy efficiency due to disabled heating for urban parcel delivery), the case can reach parity today.

Three critical assumptions most affect TCO breakeven points.The assumptions that drive TCO uncertainties include the development of fuel and electricity efficiencies for ICE or BECV technologies, the cost of batteries, and the cost of fuel and electricity. Also, our analysis shows that the TCO breakeven of urban applications is more sensitive to changes in assumptions than it is for long-haul applications. That’s because the costs per kilometer associated with both BECVs and ICEs for long hauls remain closer to each other for a longer period. For example, a five percent improvement in a BECV’s TCO would shift the breakeven point by three to four years in urban applications, but only by about two years in long-haul applications.

Infrastructure readiness

The required charging infrastructure represents a major challenge to BECV uptake. Nevertheless, charging may not be as critical as it is for passenger cars, due to the predictability and repeatability of driving patterns and operational uses and the central nature of refueling. In general, charging infrastructure will be required at depots to enable charging when BECVs are not in use (for example, overnight). Building a supporting infrastructure will require investments by vehicle owners and, potentially, end users as well. (Our TCO modeling reflects the required cost of use-case-supporting charging infrastructure.) The possibility of charging while loading or unloading could drive earlier adoption because it has the potential to reduce cost based on smaller battery-size requirements.

Long-haul (and partly regional) applications will require in-route charging, for example, at motorways or resting areas. On the one hand, the high level of predictability of long-haul routes allows for concentrated investment in charging infrastructure. Companies can identify key routes and charging points and prioritize them for investment. Analysis shows that on popular routes a charging point every 80 to 100 kilometers could suffice for the early phases of HDT adoption, so the sheer number of charging points might not be the limiting factor.